Getting a refund once you’ve lodged your tax return is a pretty nice bonus, but it’s easy to fall into the trap of spending that money as soon as it hits your bank account. While it’s yours to do with whatever you want - if you have a financial plan in place (and if you don’t, perhaps it’s time you did!), it’s a good idea to think about how you can use that extra money to help you achieve your goals.
So instead of using your tax refund for instant gratification, consider investing it wisely in some alternative options. They may not give you an immediate benefit, but smart investments tend to last much longer than that shiny new purchase that caught your eye.
1. Pay your debts
A smart way to use your tax refund is to put it towards paying off your debts, especially those with high interest rates. Whether you pay the debt in full or just part of it, every little bit counts in your journey towards financial freedom. Small things add up – for example, if you are paying off your credit card debt, and can manage to pay an extra $1,000 off it right now, that could save you $200 in interest each year (based on an interest rate of 20% per annum).
2. Create an emergency fund
Preparing for the unexpected means you can cope financially if and when it happens. If you don’t already have a financial security net, a strategically sound option for your tax return is to put it away in a separate, interest-bearing account so you’ve always got contingency funds readily available for emergencies.
3. Add it to an offset account
If you have a variable-rate mortgage, an offset account is a smart way to reduce the interest you pay. And since your mortgage interest will always be significantly higher than any interest you’ll get from a deposit account, it makes sound financial sense. Many banks will allow you to open multiple offset accounts, so you could have one account for your wages and another for any bonus money that you’re able to drip-feed into it. You could even have a third offset account for your emergency fund.
4. Deposit it into a savings account
If our first 3 options don’t seem right for you, simply putting your money into a savings account where it accumulates interest is also a clever way of using your refund. Look for a deposit account that offers the highest interest rate. Often these are accounts that require you to deposit some regular funds each month to get the best rate - so if you can afford to squirrel away a bit extra each month, even better!
5. Add it to your super
Did you know you can add up to $27,500 to your super each year? While that might seem completely out of reach for most of us, any additional contributions you make to your super fund may be tax deductible – meaning you could be in for a bigger refund next year!
6. Use it for upskilling
One of the greatest financial assets you will ever have is yourself, and the more you know, the better you can become. Using your refund to upskill for your work or personal interest, can pay lasting dividends, especially if it helps you to get a promotion at work or start your own business. And the good news is that many learning and development courses can be completed online, making investing in yourself a highly flexible option.
7. Make improvements to your home
Enhancing your home means improving your quality of life. If you’ve been putting off those home repairs or upgrades, now could be the opportune time to address them with that extra cash. If you own your home (usually with a mortgage on it for most of us), any improvements could also increase the capital value. But even if you’re renting, you can make your home more enjoyable by simply upgrading some of the décor.
8. Invest in shares
If you pay attention to your superannuation, you’re probably aware that the bulk of it will be invested in Australian and offshore shares. Shares are a popular investment vehicle because of their propensity for growth over the long term. Several mobile apps can help you with this, and one of the most popular is Raiz, an app that also lets you round up your bill each time you shop, with the round-up amount going straight into your investment. Raiz offers a choice of 8 portfolios, ranging from conservative to aggressive. You can also check out other investment trading apps in this article by Forbes.
9. Start your own business
Another option if you're considering investing your tax return, is putting it towards your own business, where the boss is you. If you’ve been thinking about doing this for a while, that extra cash could help to get your business up and running, even if you have to juggle it with your current job. While it may mean working some extra hours, if you put your mind to it, you could turn your passion or hobby into a profitable venture. Your tax refund could be utilised to develop your website, market your business, buy stock or create promotional material.
10. Invest – but have some fun too
Achieving financial fitness certainly takes some discipline, but that doesn’t mean you can’t have some fun along the way too. There's absolutely nothing wrong with using a portion of your return to treat yourself and saving the rest for the future. As with most things in life, maintaining a balance is important, so don’t feel guilty about rewarding yourself from time to time.
Your return on tax can be a great financial boost, regardless of when it arrives. And if you need a little extra cash to add to it for those home improvements, we’re here to help. Just take a look at our cash loans up to $5,000 to find out how quick and easy it is to get your hands on some extra funds. Once a loan is approved, the cash is usually in your bank account within a few hours - so you could start planning those improvements today!